Benefits of a Joint Venture Business

Joint venture is one of the best ways for start-up companies and individuals who lack funds or technological know-how to gather the requisite materials needed to kick-start businesses from where they are and get to where they dream to be professionally. Thus, achieving success in a joint venture without more requires a good business plan, well executed agreement and effective communication among all parties involved for a complete execution of the target project. In this article, I have highlighted the benefits of a joint venture business backed up with some legal authorities. See the case of N.H. Int’l S.A. v. Nicon Hotels Ltd. (2007) 15 NWLR (Pt. 1056) at p. 9. 

What is a Joint Venture?

Joint venture means or presupposes that the business is owned by more than one person or companies. Although it has a time framework, it is essentially in the form of a contract and may be between a person and a company or between two or more individuals, or between companies or between a company and government agency with the sole aim of making profit in a specific area of interest. It may also involve two entities in different areas of expertise with the intention of coming together to create a legal relationship by way of joint venture to engage in a new project or provide a new service in accordance with the scope of what they have set out to do in the agreement. See the cases of Corporate Ideal Insurance Ltd. v. Ajaokuta Steel Co. Ltd. & Ors. (2014) LPELR-22255SC, Primeview Hotels Ltd & Anor v. Hotel Presidential Ltd & Ors (2020) LPELR-50642CA; sections 45 and 46 of the Nigerian Oil and Gas Industry Content Development Act, 2010. 

Essential feature of a Joint Venture:

Joint venture similar to partnership is a business undertaking between two or more persons engaged in a single defined project and the essential features are:

(a) Express or implied agreement

(b) Common purpose

(c) Shared profit and losses

(d) Parties enjoy equal voice in controlling the project.

See the case of Shoprite Checkers Limited & Anor v. A. I. C. Limited (2020) LPELR-49905(CA).

Aside the fact of coming together of two separate entities for the purpose of carrying out or working on a new project for profit making. It is important to note that a joint venture business avails parties with the opportunity of pooling resources or funds together and knowledge sharing to achieve success.

Benefits of a Joint Venture:

Some benefits of a joint venture are as follows:

1. Business Expansion: A start-up company without fund or capital with potential for growth and good business idea may engage in a joint venture with an investor who has the capital for the on-boarding program of the business whereby parties share profits for a number of years that the agreement will last while maintaining a separate legal entity.
2. Resources: This affords greater opportunity to more funds for the growth or expansion of business and even gains access to specialized staff or technology for increased product output and human capital as well as technological innovation which would otherwise not have been possible if not for the benefit of a joint venture.
3. Capacity: There is an increase in capacity to what a company or an individual can achieve through a joint venture, part of which is greater chances in entrance to established markets and distribution channels globally. For instance, the Nigerian Oil and Gas Industry Content Development Act, 2010 empowers International Oil Companies to explore, develop, transport and sale of Nigerian oil and gas resources including upstream and downstream oil and gas operations which is a wider coverage granting additional capacity for international oil companies and other multinationals to engage in other business activities outside their licenses with other companies through joint venture.
4. Shared Risk: Every business at one point or the other experience financial loss. Financial loss can be devastating to a single business entity, unlike a joint venture where parties to the agreement share losses according to the level of their investment in the business, thereby cushioning the effect of loss. This also extends to the area of taxation where the company created as a result of the joint venture pay taxes to the relevant authorities, unlike situations where different entities pay tax in instances of separate entity.
5. Limited Life Span: Every joint venture has a life span which only covers part of what each party to the agreement is to do and at the end of which parties count their losses and gains before parting ways. This affords parties the opportunity to either mitigate loss or enjoy gains at the expiration of the joint venture agreement.

See the cases of Prof. Theophilus Adelodun Okin & Anor v. Mrs. Agnes Iyeba Okin (2016) LPELR-41165(CA) and Alade v. Alic (Nig.) Ltd. (2010) 19 NWLR (Pt. 1226) 111.

Joint venture is one of the ways to grow businesses

Risk of a Joint Venture:

Joint venture business can be complex as it takes time and effort to find a true collaborator to build the right relationship. Thus, the risks which may likely arise in a joint venture are:

1. Objectives: Despite the fact that most joint venture agreements are documented and signed, parties always have ulterior motives, agenda and objectives which may likely frustrate or adversely affect the smooth execution of the project.
2. Imbalance: There is always imbalance in the level of expertise, investment, technological innovation, assets, commitment and human capital brought into the project by different parties to the agreement.
3. Ideology: Management style and cultural differences if not properly harnessed usually result in poor integration and cooperation in execution of a project under a joint venture. This is typically experienced in technology transfer between foreign expatriates and local or indigenous workforce in multinational companies.
4. Non-Disclosure/Non-Compete Clause: Most joint venture agreements have non-disclosure or non-compete clause which prohibits either of the parties to engage in similar project or knowledge sharing scheme with a third party within the life span of the project.
5. Conflict: As a result of breach of trust, dishonesty, part performance, lack of accountability and fiduciary relationship, there is always the issue of disagreement and that is why a joint venture agreement usually contain arbitration clause in the event of divergence to allow parties ventilate their grievances. 

Conclusion:

For there to be a successful joint venture agreement, parties must demonstrate intention to enter into a legal relation in respect of the project they wish to embark upon. See Omega Bank (Nig) Plc v. O.B.C Ltd (2005) 8 NWLR (Pt. 928) 547.

Because a reasonable person cannot consent for another to take the trouble, time and expense to search for a project both of them intend to operate a business venture unless their mind is tuned to implementing the project. It is done when there is prior understanding between the parties to use it for the purpose they had agreed. See the case of Olowu v. Building Stock Ltd. & Ors. (2018) 1 NWLR (Pt.1601) 343 at 436.

It has to be stressed that most successful businesses are not merely based on a more efficient way of supplying existing goods but arise out of exploration or discovery of viable outlets to market the goods or deliver services which a joint venture provides.